Living the Warren Buffett lifestyle in Naija
posted by Michael Olafusi , on ,
I hope you've heard of Warren Buffett and that he is the first guy to kick Bill Gates off the No 1 spot on World’s Richest list.
Anyway, I will be telling you how I have been emulating his lifestyle right here in Nigeria.
Warren Buffett made all his money from investing, initially, in the stocks market in the 1950s, then later from buying out other companies. I have read a lot about him, read his annual letters to his partners dating as far back as 1959. His secret weapon is growth, compounded. That is why he keeps saying – “Never lose money!” If you invest in Nigeria Money Market with a return of about 12% annualized rate, each million naira you invest now will become 2 million naira in 2019. So you know that every 50,000 naira you put into the investment is actually 100,000 naira in a few years’ time. And if you’re young like me, that million naira will become 32 million naira in 30 years’ time! But the issue is if you put that same million naira in the Nigerian Stock Exchange, and it goes up 30% this year, then goes down 50% next year, and goes up 60% the following year, and keeps doing that till 2019. Your million naira will keep bouncing up and down, will be less than 2 million naira in 2019. That is the logic behind Warren’s “Never lose money”. The same compound growth effect that turns 1 million naira to 2 million naira in 3 years at annual rate of 24%, and 500 million naira to 1 billion naira in 2 years at rate of 36%. That same effect will make your 1 million naira turn to 500,000 naira in 3 years when market dips at an annual rate of 24%, and your 1 billion naira will turn to 500 million naira in 2 years if market dips at annual rate of 36%. Now you can see why that former governor said he’ll never touch the NSE again after his money evaporated (just like that).
So Warren Buffett makes sure he never loses money. Because as long as you don’t lose, even a mediocre annual rate of 10% will work wonders. Even Albert Einstein claims that Compounded Growth Rate is the greatest human invention.
So how do I live this lifestyle?
Easy. I just avoid losing money too. I live on a monthly budget, a very elaborate one. I split my monthly income into two categories – Monthly expense and Investment. I have a record of all my daily expenses from as far back as September last year, so I know my average monthly living expense. I took that figure, added a monthly depreciation for expenses I make a few times a year, and voila, I came up with a very generous monthly living expense allocation. And I’m yet to overshoot the allocation till date, in other words, I have only been having Budget surplus. Then the rest, I put in my investment accounts (not really much). But as long as I don’t gamble away the investment cash, every naira now will become 10 naira in a matter of time (years).
Finally, I don’t play catch-up. I don’t buy what I don’t need. I do extensive cost-to-benefits, opportunity cost and delayed gratification analysis on all my CapEx (expenses like *car, phone, computer). Most of my expenses are OpEx (I spend a lot on feeding, I need lots of quality meat to keep my six packs).